It is the second piece of bad news for New Zealand's biggest
exporter this week and follows French food-processing giant
Danone filing proceedings against Fonterra in an attempt to
gain compensation for losses it says it suffered as a result
of the botulism false alarm. Units in the NZX-listed Fonterra
Shareholders' Fund closed up 5c at $5.68.

Hamilton Hindin Greene director James Smalley said yesterday
the market appeared to have taken the news "within its
stride" and the situation was different from the botulism
scare.

Unlike last August's botulism crisis, this food scare is
restricted only to New Zealand. It also doesn't involve milk
powder, which is a big export product for the dairy giant.

However, Smalley said the scare could cause Fonterra
reputational damage depending on how the issue was picked up
by foreign media.

The news received coverage yesterday on the Wall St Journal
website and Chinese news agency Xinhua, which said: "New
Zealand's food safety regime was in the spotlight again" as
Fonterra recalled "yet another product".

"Hopefully this time [Fonterra] will do a better job maybe
putting it into perspective," Smalley said.

"Because last time as we know I think it was a false positive
and it was only quite a small amount of material that was
actually affected ... but once it gets outside the country it
can get blown out of proportion. So one would hope they would
have learned, from the botulism scare I guess, how to deal
with these types of issues a bit better.

"The question will be over the coming days whether anything
greater will be made of it [in international media]. Because
I think with the botulism one it did take a while for that
negative momentum almost to really fire up."

"While the timing is far from ideal given what went on last
year, this is a voluntary recall initiated by Fonterra's own
testing. I hope it shows our consumers that a company owned
by thousands of Kiwi farmers does put food safety first," he
said.

"It should also tell our consumers that when a Fonterra-owned
brand is on the shelf, someone back at Fonterra is testing it
to ensure it remains safe to consume.

"When testing does find a problem, then no matter what the
product is, or the timing, a voluntary recall is completely
justified."